The announcement that California utility company PG&E Corporation PCG is preparing for bankruptcy sent shares of the battered stock tumbling more than 62 percent this week. However, a potential PG&E bankruptcy could also impact other utility stocks.
Several Wall Street analysts have weighed in on what this week’s news means for PG&E and other utility stocks that have exposure to California. Here’s a sampling of what they’ve had to say.
PG&E’s Bleak Outlook
Wells Fargo analyst Neil Kalton downgraded PG&E from Outperform to Market Perform, lowered his price target from $15 to $10 and said there has been little evidence to suggest a bankruptcy can be avoided since the company first said it was preparing a filing on Monday.
“In addition, while we remain of the opinion that there could be meaningful residual equity value at the end of a bankruptcy process, we are mindful that the process is likely to be highly complex and lengthy,” Kalton wrote in a Wednesday note.
Argus analyst Jacob Kilstein joined Kalton in throwing in the towel on PG&E stock. On Tuesday, Kilstein downgraded PG&E from Market Perform to Sell and removed his price target, projecting further downside as the bankruptcy filing date approaches. Kilstein said the situation at PG&E turned out to be worse than he had anticipated.
“We had expected California regulators and lawmakers to step in to prevent a bankruptcy... In retrospect, we were not cautious enough about the stock,” he wrote.
Impact On Other Utilities
Bank of America analyst Julien Dumoulin-Smith said PG&E’s downfall is bad news for its primary California competitor, Edison International EIX. On Tuesday, Bank of America downgraded Edison from Neutral to Underperform and lowered its price target from $64 to $61.
“We see EIX positioned poorly against the California wildfire backdrop, despite what is substantial rate regulated growth translating to top tier EPS growth, with clear prospects for continued investments through the next decade with EV and Storage penetration still in early stages,” Dumoulin-Smith wrote.
SunTrust analyst Ali Agha sees things differently and said Edison and other utilities with exposure to California have limited exposure to wildfire risk.
“In fact, if PCG's filing was to spur the state of California to accelerate its financial support for the state utilities, EIX would be a beneficiary.,” Agha wrote. He said NRG Energy Inc NRG and Vistra Energy Corp VST also have very little exposure to PG&E and the California fires. Agha reiterated the following ratings and targets:
- Edison: Buy rating, $72 target.
- NRG: Hold rating, $39 target.
- Vistra: Buy rating, $28 target.
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